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$1.8m penalty assessed for COBRA notice violations

The U.S. District Court for the Southern District of Indiana held that an employer was responsible for paying $1,852,000 in penalties for failing to issue timely COBRA election notices to a class of 741 former employees. In this case, the employer had hired a number of third-party administrators (TPAs) to perform payroll, benefits, and COBRA administrative services. However, over the course of several years, many employees failed to receive timely COBRA notices because of a breakdown in communication between the employer and the various TPAs. Under COBRA, after a qualifying event, an employer must provide notice to an employee of his or her right to elect continuation coverage. A plan administrator generally must provide notice of COBRA rights to qualified beneficiaries within 44 days of the date of the qualifying event, such as the termination of employment. If a plan administrator fails to abide by the notice provisions of COBRA, a court may, at its discretion, award a penalty of up to $110 per day from the date of the failure to provide the timely COBRA notice. In this case, the district court justified the large penalty on the basis that the employer lacked an internal system for tracking the status of its employees, failed to provide oversight of its TPAs on an ongoing basis, and failed to accept responsibility for its COBRA notice system. Often employers hire TPAs so that they don’t have to worry about administrative and compliance issues. However, this case serves as a reminder that hiring a TPA, while reducing the administrative burden, does not absolve an employer from these compliance obligations. (Pierce v. Visteon Corp., S.D. Ind. 2013)

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